Risk-Averse
Risk-averse describes a preference for less uncertainty. In investing, a risk-averse person generally prefers the less risky choice when two investments offer similar expected returns.
Reviewed September 2026
Simple example
Suppose Investment A and Investment B both have an expected return of 5%, but B can swing much more sharply in value. A risk-averse investor would usually prefer A unless B offered enough additional expected return to justify the extra risk.
Risk aversion does not mean avoiding all risk
Most investing involves some form of risk. A risk-averse investor may still own stocks, bonds or other investments but may choose a more conservative mix, diversify broadly and keep enough cash for near-term needs.
Risk tolerance vs. risk capacity
Risk tolerance is how comfortable you are with uncertainty and losses. Risk capacity is how much risk your financial situation can actually absorb. Someone may feel comfortable taking risk but still have low capacity if the money will be needed soon.
Portfolio impact
Greater risk aversion often leads to a larger allocation to lower-volatility assets and a smaller allocation to highly volatile assets. The right mix depends on goals, time horizon and financial circumstances—not on a label alone.